Overview of key SMSF rules and regulations

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The rules and regulations that govern SMSFs are stringent. As the Trustee of your fund it is important that you understand the rules that apply. Below we overview some of the key rules you should be aware of.

Key legislation

The governing legislation for SMSFs is the Superannuation Industry (Supervision) Act 1993, commonly referred to as the SIS Act. Here are some key rules you should be aware of.

The sole purpose test

The sole purpose test requires that SMSFs are maintained for the purpose of providing benefits to members upon their retirement, or to their dependants if a member dies. As a trustee of a regulated superannuation fund, you must comply with the sole purpose test for the SMSF to be eligible for superannuation tax concessions. The sole purpose test is divided into core and ancillary purposes.

A regulated SMSF must be maintained solely for either:

One or more core purposes, or

One or more core purposes and one or more ancillary purposes.

Core purpose

An SMSF must be maintained to provide benefits for each member of the SMSF on or after at least one of the following:

The member’s retirement

The member reaching an age not less than prescribed in regulations

The member’s death, if the death occurred before they retired, and the benefits are provided to their dependants or legal personal representative or both

The member’s death, if the death occurred before they attained an age not less than prescribed in regulations, and the benefits are provided to their dependants or legal personal representative or both.

Ancillary purpose

Ancillary purposes for maintaining an SMSF are to provide benefits for members in the following circumstances:

Termination of a member’s employment with an employer who made contributions to the SMSF for that member

On the cessation of work due to ill health

Death of a member after retirement where the benefits are paid to their dependants or legal personal representative or both

Death of a member after reaching an age not less than prescribed in regulations where the benefits are paid to their dependants or legal personal representative or both

Another ancillary purpose approved in writing by the regulator.

This allows an SMSF to provide benefits in situations of financial hardship and/or on compassionate grounds, subject to the SIS Act, the governing rules of the SMSF and the approval of the appropriate regulator.

Accepting contributions

As a trustee you must be aware of the minimum standards for accepting contributions under the SIS regulations. The rules become more complex from age 65 and generally require satisfaction of a work test. There are also limitations on how much can be accepted as a single contribution at any point in time.

Types of contributions

Concessional contributions are generally contributions made for you or by you for which a tax deduction is claimed and are included in the assessable income of the SMSF. They include:

Superannuation guarantee (SG) contributions

Contributions made by employers over and above the SG or award obligations, including salary sacrifice contributions

Payments by the ATO of SG shortfall amounts

Contributions paid pursuant to an award/agreement certified by an industrial authority

Personal contributions for which a tax deduction is claimed.

Non Concessional Contributions (NCCs) are contributions that are not assessable to the SMSF and include:

Personal post tax contributions

Spouse contributions

Certain amounts of an overseas transfer

Excess concessional contributions above the concessional contribution cap which are not refunded.

Investment restrictions

There are various restrictions and requirements placed on how an SMSF may invest its assets. These are designed to protect members’ benefits. The main ones are:

Sole purpose test

Trustee covenants concerning investment of member’s money

Borrowing restrictions

Regulations applying to investments in collectibles and personal use assets

The information in this document has been prepared by Westpac Banking Corporation ABN 33 007 457 141 AFSL and Australian credit licence 233714. The information is general in nature and does not take into account your personal needs, objectives or circumstances and therefore, before acting on this information, you should consider whether it is appropriate for you.

BT Portfolio Services Ltd ABN 73 095 055 208 AFSL 233715 (BTPS) operates BT Panorama Investments (the investor directed portfolio service operated by BTPS). BT Funds Management Limited ABN 63 002 916 458 AFSL 233724 (BTFM) is the responsible entity and issuer of interests in BT Cash and Westpac Financial Services Ltd ABN 20 000 241 127 AFSL 233716 is the responsible entity and issuer of interests in BT Managed Portfolios. An Investor Guide is available for BT Panorama Investments and a PDS is available for BT Cash and BT Managed Portfolios (the Panorama products). These disclosure documents can be obtained from BTPS by visiting www.bt.com.au/smsf or calling 1300 881 716. A person should obtain and consider the disclosure documents before deciding whether to acquire, continue to hold or dispose of interests in the Panorama products.

In addition, BTPS is the provider of the Panorama SMSF Establishment Service and the Panorama SMSF Administration Service. The Guide and Terms and Conditions for these services are available by visiting www.bt.com.au/smsf or calling 1300 881 716

BTPS, BTFM and WFSL are subsidiaries of Westpac Banking Corporation ABN 33 007 457 141 (Westpac). Apart from any interest investors may have in Westpac term deposits or securities acquired through Panorama, an investment in or acquired through Panorama is not an investment in a bank or a bank deposit. Westpac and its related entities do not guarantee an investment in or acquired through Panorama Investments.

The information shown on this site is general information only, it does not constitute any recommendation or advice; it has been prepared without taking into account your personal objectives, financial situation or needs and so you should consider its appropriateness having regard to these factors before acting on it. Any taxation position described is a general statement and should only be used as a guide. It does not constitute tax advice and is based on current tax laws and our interpretation. Your individual situation may differ and you should seek independent professional tax advice. You should also consider obtaining personalised advice from a professional financial adviser before making any financial decisions in relation to the matters discussed hereto.